Prescott Manufacturing operates several plants, each of which produces a different product. Early in the current year, John Walker was hired as the new manager of the Meadowbrooke Plant. At year-end, all the plant managers are asked to summarize the operations of their plants at a meeting of the company’s board of directors. John Walker displayed the following information on a chart as he made his presentation:

Walker made the following statements to the board: “As you know, sales volume has remained constant for the Meadowbrooke Plant. Both this year and last, our sales amounted to 100,000 units. We have made real gains, however, in controlling our manufacturing costs. Through efficient plant operations, we have reduced our cost of finished goods manufactured by over $100,000. These economies are reflected in a reduction of the manufacturing cost per unit sold from $10.20 last year ($1,020,000 ÷ 100,000 units) to $9.09 in the current year ($909,000 ÷ 100,000 units).”
Father Alan Carter is president of St. Mary’s University and is a member of Prescott Manufacturing’s board of directors. However, Father Carter has little background in the accounting practices of manufacturing companies, and he asks you for assistance in evaluating Walker’s statements.
a. As a preliminary step to your analysis, compute the following for the Meadowbrooke Plant in each of the two years:
1. Cost of goods sold.
2. Number of finished units manufactured.
3. Average cost per unit manufactured.
4. Average cost per unit sold.
b. Evaluate the statements made by Walker. Comment specifically on Walker’s computation of the manufacturing cost of units sold and on whether it appears that the reduction in the cost of finished goods sold was in fact achieved through more efficientoperations.

  • CreatedApril 17, 2014
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